Hi All I wanted to share a few fails of mine and things today I...

Hi All

I wanted to share a few fails of mine and things today I learnt about Commsec, AHZ, and margin loans, and Commsec's perception of AHZ.  Had an interesting day that almost cost me $50k and and I'll describe a sequence of events, how i resolved, and some traps with AHZ and Commsec and some potential upcoming changes to legacy AHZ LVR ratios (that I didn't even know existed).

1. I have a few trading accounts.  One is a margin loan, the other a normal T+3 in my wife's name.

2. I have similar amounts of AHZ shares in both accounts.  In my margin loan I have about 15 shares, most are margin stocks although i keep a very sensible margin.  I also own a few stocks like AHZ which I didn't think were on margin.

3. Today I started with a current LVR of about 35% with base LVR of 55%.  Even with AHZ at 20c, I was in the green but regardless, up and till today, i didn't think any part of my AHZ holding was on margin.  I was wrong. First mistake!

4. During the drop in price last few weeks (seems like years), I bought a few shares.  Ok I lied - I gouged.  nom nom nom.  I thought any rise would be a good thing - after all how could your portfolio going up and becoming MORE green be a bad thing.  This was my second mistake and a very basic misunderstanding on my behalf about how margin loans work.  This is where you learn about going OVERWEIGHT in a margin loan.  I never contemplated that it could catch you on a green day as badly as a red day.  Weird but real.

5. When the price hit about 36c this morning, up from 21c where i bought my last 125,000 shares, I was busy giving myself high fives and clicking refreshing on the holdings tab about 15,000 times a minute.  Yay it was a lovely start to the day.  When i checked my portfolios - at one stage I was up about $100k for the morning and well in the green.  Then I hit refresh again... UPSIDE DOWN BOOM and well into the RED!  WTF

6. I clicked refresh again and all of a sudden my current current LVR skyrocketed to well over 100% and I had a margin call of about $50k - well in the red.  WTF - my portfolio had increased in value (at last) and I was being margin called.  I had no idea what was going on.  I was confused to say the least.  After clicking refresh another 350 times in about 30 seconds, i called Commsec.

7. So what had happened is that my portfolio is quite heavily weighted in AHZ shares.  With the near doubling in price in the last few weeks, all of a sudden I had gone into an OVERWEIGHT situation.  It didn't matter it was because AHZ was going up for once, all that mattered was for a few brief instants, the AHZ  holding in my portfolio had all of a sudden increased to more than 75% of the total portfolio in terms of value.  

8. Now the plot thickens.  Turns out about 60% my AHZ holding in this account was on margin.  Commsec about 24 months ago had removed the LVR on AHZ for new purchases of AHZ but left it in place for legacy holdings.  This explained why all my recent purchases decreased available funds by an exact amount.   I just assumed none of it was on margin without actually paying too much attention.  However here is the trap - and your first warning.  Once the overweight had triggered, my ENTIRE AHZ LVR ratio reset from 40% to 0%.  I no longer had any margin on any part of my AHZ holding which caused my portfolio current LVR to shoot over 100%, triggering the margin call.

9. My first thought was ok - I am where I am - how do I go forward?  A few deep breaths always works in these situations.  I discussed a few options with the Commsec rep always polite.  I offered to pay the margin by selling stock and reduce the entire loan to zero - hinting that Commsec would lose their $10k interest i pay each year. HINT 1.

10. After a while, we determined that if I sold a few AHZ shares to take me underweight - in this case 25,000 AHZ shares, he might be able to convince the Risk team to reinstate my LVR.  We also figured I should transfer another 175,000 AHZ shares into another portfolio reducing my weighting even further and providing a bigger buffer. HINT 2.

So after all that - the bureaucracy of it all and the solution - I have to transfer a further 175,000 shares to another account to reduce my TOTAL weighting of AHZ in the margin-able portfolio.  That reduces the issue in the short term and I can handle that.  By selling 25,000 shares, I made about $2500 on the trade so no drama.  However I'd have preferred to hold the lot.  I was planning to sell some other stocks anyway so this just gives me incentive but I didn't want to force sell it.  prefer it to be in my own time.

The next trap for AHZ - after discussing the issue with the Commsec One rep and the risk management team, I learned that AHZ is on their watch list (in a bad way).  You can argue the point but its actually no point in sounding like an instant expert on a stock.  No matter what I know or others know about AHZ, Commsec risk team have their own criteria.   However from a Commsec perspective if you have AHZ shares on legacy margin, be aware they could potentially remove any legacy margins that you have on them due to their own risk management and review process, or because they become overweight by natural increases in price.   I was going to argue that AHZ had turned the corner - but really - I didn't see any guys from Commsec at the AGM or emailing WP like a needy child so I just accepted the comment and will move on.   Reality is Commsec doesn't share my future belief structure for AHZ.  so be it - I could be wrong or they could be but I'm not going to change their risk calculation methodology!

Also - be careful about going overweight on any stock in a margin portfolio.  Overweight in this case is 75%.

We all make mistakes - this was mine.  I'd prefer to share the fail with others to help you learn from my mistake.  I got out of it OK as I was polite and the team at Commsec helped me once you treat them like a person and not an angry sounding board for your own eff-ups.   It could have been worse and I could have had to force sell a few other shares I own to cover the margin at prices I didn't want to sell them at.   

Got off lucky - No damage done - however still work to do.

Anyway, was a good day.  One thing the announcement today showed that AHZ has a tightly wound spring up its butt.  It showed that it won't take much to send it rocketing.  An immunotherapy deal here, a TAVR deal there.  Another large IDN, or a infusion deal - could go BOOM.  

Cheers, GLTAH and DYOR
David